War on cash – the automatic choice

Here’s how digital transformation is enabling corporate treasurers to build business resilience.

While the need to revamp corporate treasury systems has long been acknowledged, it’s time to declare a war on cash.

Today’s corporate treasuries are more complex and hold more importance in their organisations than ever. A survey1 by Strategic Treasurer found that 37 per cent of corporations now operate across at least 11 countries, 34 per cent utilise six or more banks, and 39 per cent generate payments in six or more currencies. More than half of corporate treasurers are responsible for managing 100 or more corporate bank accounts.

Three ways corporate treasury is embracing digital transformation

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The only effective way to manage this level of complexity is through digital fulfilment: More and more businesses are realising that traditional manual systems that employ paper trails and cheques are inadequate.

“It’s time to declare a war on cash and fight manual, non-digital processes,” said Philip Panaino, Global Head of Cash Management, Transaction Banking, at Standard Chartered2. “The sooner we electronify all payment flows, digitise transactions and automate, the faster we’ll reduce the exposure to the risks and costs of dealing with manual processes and physical cash.”

Digital fulfilment solutions have been tiptoeing in and adoption has been patchy. Surveys3 show that the level of automation deployed to support decision-making in corporate treasuries is generally low. In contrast, the expected pace of automation adoption among treasurers over the next three years, especially in Artificial Intelligence and Prescriptive Analytics, is high4.

In other words, treasurers are hoping and preparing for a wave of digitisation.

Growing urgency

The COVID-19 pandemic has increased the urgency of this process. Corporate treasury departments found themselves at the centre of the crisis, facing unprecedented challenges to build resilience as businesses struggled to cope with broken supply chains and uncertain liquidity. The need to transition away from manual systems is now at the top of corporate to-do lists, but how can organisations best embark on this transformation?

“When it comes to cash and liquidity management and risk management, businesses must figure out how to become more agile in terms of decision making because the external environment is moving faster than the internal environment,” Philip said. “In the past, corporate treasury transformations were a three-step process that entailed digitising, automating and shifting to real time. The way forward is turning that transformation into a one or two-step process.”

Starting that digital journey is not necessarily complex. One of the most basic corporate treasury inefficiencies—the use of cheques—is still widespread, particularly in developing markets. A 2019 survey by the Association of Financial Professionals5 found that while use of cheques in B2B transactions had dropped to a record low, they still accounted for 42 per cent of payments.

Initiating that digital transformation, therefore, can be as fundamental as streamlining systems to enable electronic collection.

As recently as 2016, three-quarters of collections for global shipping giant Maersk’s operations in UAE were handled at physical offices using cash or cheques. After implementing digital payments, today they have no cash counters left.6

A universe of options

Once this basic account restructuring is in place, a universe of digital treasury tools becomes available that can be implemented at scale, including APIs, artificial intelligence, virtual accounts, and digital collections via QR codes. The choice of tools depends to a large degree on what makes the most sense for individual businesses and their operational geographies. For the latter, regulatory drives in-market will influence the scope and pace of digital adoption. And in many developing markets, this is now rapidly evolving.

Tools are already available to manage everything from payments to currency hedging to liquidity management. As these tools become more widely adopted and embedded, an environment of 24/7 liquidity will emerge, offering companies the opportunity to reduce borrowing and put more of their capital to work. Indeed, a Euromoney survey7 of corporate treasurers in 2019 found that 50 per cent believe liquidity management is the area in most urgent need of automation.

“Being able to fund and de-fund accounts quickly must become the standard,” said David Rego, Head, Liquidity Management and Escrow Solutions at Standard Chartered. “Our ‘just-in-time sweeping,’ for instance, is unique in the way it’s automated. When a debit for payment fails, the funding sweeps run across a client group’s accounts in compliance with intercompany limit rules to fund the insufficient position. This removes the need to monitor, manually fund or maintain idle cash for funding. That’s the kind of speed and automation that businesses must bring to every aspect of their treasuries.”       

Data is another area with enormous potential. Treasury systems are already rich in data, but its potential is not always maximised. Digital tools that enable treasurers to replace scheduled and batch processing and manage liquidity in real time have huge implications.

Regulatory support is essential to maximising these opportunities –  progress is evident here, too. Governments in many markets – including India, Singapore, Egypt and China – are fostering a positive environment for future digitisation.

The COVID-19 crisis has placed enormous pressure on treasury management, but it has also presented an opportunity to accelerate – and in many cases leapfrog – their digital transformation.

“Many treasurers were already on their way to embracing digital real-time to the point that it’s almost cliched,” Philip said. “But the disruption over the past several months accelerated that. Going forward, companies must fast-track their treasury transformations. That’s no longer a nice step, it’s critical in terms of fulfilment and ensuring the survival, growth and lasting objectives of the business.”

Produced by Bloomberg Media Studios in partnership with Standard Chartered.

This article is part of our ‘Digital Transformation’ series, exploring digitalisation trends to build resilience, efficiency and achieve transformative growth.

1 https://www.theglobaltreasurer.com/2020/01/20/the-10-biggest-corporate-payments-trends-affecting-treasurers-in-2020

2 https://www.sc.com/en/people/philip-panaino

3 https://www.treasury-management.com/showarticle.php?pubid=1&issueid=442&article=3672&page=showarticle&pageno=0

4 https://www.treasury-management.com/thumbs/274Citifig1.png

5 https://www.pymnts.com/news/b2b-payments/2019/jpmorgan-chase-afp-applaud-shrinking-corporate-check-use

6 https://thepaypers.com/background/exclusive-interview-with-standard-chartered-on-the-lessons-learned-from-the-banks-open-banking-journey-i--780676

7 https://cib.db.com/docs_new/Realtimetreasurywhitepaper.pdf

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